Collective investment trusts (CITs) have become an increasingly popular investment vehicle, especially for retirement plans. As one of the largest asset managers globally, BlackRock offers a suite of equity index CITs that provide low-cost, transparent access to broad market indices. In this article, we will take a closer look at BlackRock’s equity index CITs, examining their structure, advantages compared to mutual funds, and potential risks that investors should be aware of.
What are CITs and how do they differ from mutual funds?
CITs, also known as commingled funds, are pooled investment vehicles regulated by the Office of the Comptroller of the Currency (OCC) rather than the SEC, which oversees mutual funds. The main differences are:
1. CITs are only available to qualified retirement plans like 401(k)s and certain institutional investors. Mutual funds are open to all individual investors.
2. CITs have lower operating costs compared to mutual funds since they are exempt from registration, reporting and other regulatory requirements.
3. CITs offer daily valuation and liquidity just like mutual funds. However, CITs are not required to publicly disclose their holdings daily.
4. CITs may have less portfolio transparency than mutual funds. However, major CIT providers like BlackRock proactively provide portfolio statistics to create transparency for investors.
BlackRock’s suite of equity index CITs tracks popular benchmarks with minimal costs
BlackRock’s equity index CITs seek to closely track the risk and return characteristics of widely followed equity benchmarks:
– U.S. Equity Index CITs include those tracking the S&P 500, Russell 1000, Russell 2000, Dow Jones U.S. Completion Total Stock Market indices.
– International Equity Index CITs track the MSCI EAFE, MSCI ACWI ex-U.S. and MSCI Emerging Markets indices.
– World Equity Index CIT provides exposure to the MSCI ACWI IMI index covering global developed and emerging markets.
As passively managed investment vehicles, these CITs offer low expense ratios, often less than 5 basis points (0.05%), which can translate to significant cost savings especially for large retirement plans.
BlackRock equity index CITs offer advantages but also present potential risks
BlackRock’s suite of equity index CITs provides low-cost access to broad market returns for retirement plan investors. Some key advantages over mutual funds include:
– Lower expense ratios enhance returns over the long run
– Daily valuation and liquidity to accommodate plan withdrawals
– Ease of administration as a single pooled vehicle versus multiple mutual funds
However, CITs have potential drawbacks that investors should evaluate:
– Limited transparency if holdings are not disclosed regularly
– Concentration risk as assets are pooled rather than segregated
– Subject to management and operational risks of the fund provider
Overall, for passive equity exposure, BlackRock’s equity index CITs present an attractive option for large retirement plans to garner diversified market returns efficiently.
BlackRock’s equity index CITs offer a low-cost, convenient way for large retirement plans to implement passive equity strategies tracking popular benchmarks. However, CITs differ from traditional mutual funds in their regulatory structure and potential risks. Understanding these tradeoffs allows plan investors to effectively incorporate equity index CITs as part of their broader asset allocation policy.